The Need for a National Energy Strategy

Thank you for this award. I am honored to be included with so many of your outstanding past recipients. I am especially honored to be recognized by one of the world's top research organizations.

Anyone familiar with MRI is deeply impressed by your work, whether in life sciences or social policy. Through the national renewable energy laboratory, you are engaged in what is one of the most noble quests in science today - the pursuit of renewable energy.

Let me also thank one of your past honorees, Charles Price, for his role in bringing us together. Charlie is a true civic and corporate leader in Kansas City, and a valued member of Texaco's Board of Directors.

I would like to speak to you tonight about a topic that is of great interest to my industry and one that I believe is of vital importance to our nation: the need for a national energy strategy.

It just so happens that the last time the MRI recognized someone from the energy industry was in 1973, when you presented this award to Dean McGee of Kerr-McGee.

For those of you in the room old enough to remember, it was during that period when energy prices - and the need for a national energy strategy - were very much on the minds of consumers and politicians.

In the 1970's, a price spike helped push the U.S. economy into recession. Motorists were left fuming in long lines at the pump, in part due to the all-too-visible hand of government in the market.

During the first energy crisis in 1973, one state department official entitled his report on the matter, "The Oil Crisis: This Time the Wolf is Here."

President Carter referred to the second energy crisis in 1979 as (quote) "the moral equivalent of war," and James Schlesinger, who was Secretary of Energy at the time said, "the energy future is bleak and is likely to grow bleaker in the decade ahead."

From forced allocation of gasoline supplies to calls for federal investments on the scale of the Manhattan project, our lawmakers were in a state of panic and were willing to try anything - so long as it was government directed.

So much for the 1970's!

The recent run-up in gasoline prices is proof of how dramatically the world has changed.

This time, government wisely decided not to employ a 70's-style fix.

To be sure, there were some knee-jerk reactions - such as calls for the release of oil from the strategic petroleum reserve, and the suspension of state and federal gasoline taxes. But these would not have addressed the fundamental challenges of the energy sector, and - fortunately - Washington resisted such action.

Instead, the market was allowed to self-adjust and restore balance to prices. And while higher prices did create a genuine hardship for many, supplies were ample and the impact on the economy minor.

This impact was relatively minor because of our nation's unparalleled economic well-being and international influence - neither of which is an accident. We have clearly been doing something - indeed, many things - right for several decades.

With great research institutions such as MRI, we have developed the key technologies of the new economy - information, communications, biotechnology, and medical.

Entrepreneurs have visualized the potential of these technologies; working hard, taking risks and creating whole new industries and markets. Venture capitalists have supported them in a manner envied throughout the world. And while more remains to be done, governments have cut out much of the restrictive regulation that hampered business and stifled innovation.

Responding to ever-growing competitive pressures flowing from globalization, the past quarter-century has witnessed a sea-change in business efficiency. We have cut costs, reshaped organizations, embraced new technologies, and redefined environmental priorities.

The benefits of all these changes are undeniable. But this does not mean we should be complacent with regard to our energy supply. The challenges may be different, but they are no less important.

What has not changed since the days of disco and leisure suits is that only when energy prices spike do our politicians pay enough attention to our national energy strategy... or what passes for one.

In my mind, that is wrong.

Our nation is the engine that drives the global economy.

The United States today accounts for roughly one-quarter of the world's gross domestic product and about the same share of oil demand. Moreover, the department of energy expects that our petroleum demand could rise by an additional 30 percent in the next 20 years.

At the same time, U.S. oil production is in decline and imports are on the rise. Since 1985, the United States has lost more than three million barrels per day - about a third of its crude oil production. Imports have risen from 25 percent of U.S. demand to 50 percent, and could easily reach 60 percent by the end of this decade.

These are important trends - worthy of attention at the highest levels of government.

Yet, I do not want to leave the impression that the domestic energy market has simply "marked time" while the rest of the economy has stormed ahead. Nor am I suggesting that a growing dependency on international sources of energy supply will necessarily undercut our economic performance.

Indeed, with the transition from manufacturing to service industries and greater efficiencies at all levels of the economy, tremendous strides in energy use have been made. The U.S. economy now requires only half as much oil to produce a dollar of GDP than it did a generation ago. Expenditures on petroleum have dropped from about 8 percent of total U.S. spending to only about 3 percent.

At the same time, the United States has been fortunate that several key oil-producing nations recognize a commonality of interest in keeping the world's prime economic engine revving.

Saudi Arabia in particular understands the importance of maintaining stability in both energy supplies and prices. This year, the Saudis were instrumental in forging an agreement among OPEC nations to boost production in order to bring prices under control.

While import dependency need not mean increased vulnerability, as a nation we must not be lulled into complacency. A continuously rising bill for oil imports carries with it a very real economic risk -- not the least of which could be an increase in our already-steep trade deficit.

Given these factors, I believe that we do need a national energy strategy - one that reflects the profound changes in our world since the 1970's. To live without such a strategy, or to fall back on a strategy based on decades-old premises and approaches, would be foolhardy.

Indeed, the "Fortress America" mentality of the 1970's has been rendered obsolete. Programs pushing 100 percent self-sufficiency or creating massive bureaucratic nightmares are not the answer. "Fortress America" has been swept away by three powerful forces - globalization, technology and the environment - which have dramatically reshaped our economy.

Globalization

Let me begin with the first and greatest of these forces, globalization. Ours is a world in which no single economy can be viewed in isolation; a world suddenly opened by the collapse of communism, liberalization of trade, and the revolution in information technology.

The internet-based "new economy" that first took root here in the United States has become a world phenomenon. Everyone and every nation wants the advantages of being in on this, the only game in the global village.

The global economy is rapidly bringing economic opportunity to all corners of the world, and with that comes economic growth. At the same time, the lowered barriers of globalization now allow the energy industry to seek out new discoveries, fostering a world of diverse energy sources.

Consequently, in an era of globalization, energy strategies that don't consider our role in this global economy are simply not practical, and could diminish our competitiveness as a nation.

Technology

The second historical force transforming the world today is technology.

Powerful new technologies have completely reinvented the energy industry since the 70's, boosting supply, improving efficiency, opening up new ways to power our cars, homes and factories - all the while reducing the environmental impact of energy production and consumption.

During the '70s, locating oil and gas was a matter of educated guesswork. We drilled dozens of holes for every strike - practically the technological equivalent of dowsing with a wooden fork. Today, imaging and sensing technology gives us the confidence to drill just a single hole and know we are dead-on target.

In the 1970's we might have hoped to capture 30 or 40 percent of the oil and gas from a field. Today, thanks to technology, we can recover up to 70 percent - which is tantamount to doubling every single discovery.

At the same time, technology is spawning the development of breakthrough renewable energy systems, such as solar panels, fuel cells and geothermal.

As world population heads toward nine billion people by mid-century, demand for energy in many forms will increase, including renewables.

Many energy companies are making economic investments in renewable energy. At Texaco, we are looking at a number of technologies, but most notably hydrogen-based fuel cells. Yes, I am the head of a company that produces oil and gas, and I know that hydrocarbons will remain the dominant energy resource for the foreseeable future. But I also know that hydrogen will inevitably become part of the energy mix, for very sound environmental and commercial reasons.

The Environment

This brings me to the third force reshaping world energy markets today: the environment.

When I first joined Texaco in the mid-1960's, environmental concern was considered a "cost of doing business."

Today, environmental performance is central to the Texaco mission, as it is for all energy companies. It is a part of our bottom line, a measure of our success as a company.

In 1970, our industry invested $600 million in environmental protection. Today, that figure is more than $8 billion - greater than the annual budget of the environmental protection agency. Since 1970, U.S. population has grown by a third, and the size of our economy has doubled. Yet the overall emissions of six major pollutants have declined by 29 percent.

Much of what this industry has accomplished in environmental advances is due to technology.

Of course, no speech can touch on the interrelationship of environmental and energy priorities without addressing climate change.

We know enough about this global challenge to know that we must take action. But the targets and timetables outlined in the proposed Kyoto protocol are, in my view, unrealistic and unworkable.

Nevertheless, we cannot dismiss the spirit of Kyoto. I see an opportunity here, a chance to embrace a new style of environmental cooperation, one supported by market-based approaches such as technology transfer and emissions credit trading.

A National Energy Strategy

The reality of these three forces must be at the heart of any strategy if we are to adequately and intelligently address our long-term energy and economic needs.

This is neither the time nor the place to dwell on the details of specific policy measures. Rather, I would like to outline the elements that, in my mind, ought to be considered in the construction of a modern national energy strategy.

Certainly, Washington must redefine its role and its objectives in such a strategy.

Our national energy strategy cannot have a narrow, nationalist focus. At the same time, we cannot credibly ask other nations to open their resources to development if we close off our own.

The United States remains a major producer of oil and gas, but one with policies that seal off untapped yet needed resources. While on the one hand we urge other nations to liberalize access for the international energy industry, on the other we retain high barriers at home.

Access to federal lands in eight western states has declined by more than 60 percent since 1983. Government moratoria also restrict our ability to develop offshore resources, despite industry's strong environmental record, and our use of smarter, greener technologies to develop those resources.

The fact is that this industry has made tremendous progress in environmental stewardship over the past two decades. Any national energy strategy must take this progress into account, and it should be in sync with our national environmental goals.

Certainly, our government agencies should not work at cross-purposes, or with blinders on, oblivious to the consequences of some of their energy policy decisions. For instance, we now know it is not good enough to measure a fuel's impact on air quality if we do not correlate this with its impacts on groundwater. Likewise, it is not good enough to know how efficiently an energy product burns, if we ignore how much energy it takes to make it, or the environmental impact associated with producing that fuel.

Our energy and environmental policy leaders must work together, recognizing that the twin strategies for energy and the environment are like gears. When they do not mesh, they grind.

A national energy strategy must be market-based and geared toward growth in future needs. The deregulation of the electric power business is evidence that this can work.

A national energy strategy must be flexible. Government works best when it provides a broad map, and allows the private sector to seek the best path.

A national energy strategy must address the legitimate concerns of all stakeholders - consumers, policy experts, environmentalists, think tanks like MRI and, yes, energy companies. It should also encourage public-private partnerships, such as that between government and industry to develop the next generation vehicles.

Finally, it must be sustained.

Last year, the National Petroleum Council, under the leadership of the Secretary of Energy, asked me to chair a committee to examine our future natural gas needs. We found that domestic demand for natural gas will grow by 40 percent by 2015, and that we could not provide for that increased demand without opening up additional resources for development. However, if government and industry do not act upon this study then we will have wasted our time, and done a disservice to all Americans.

Our strategy must be more than just another fat report sitting on a dusty shelf in Washington. It requires action, a continuous reassessment and a constant drive to stay ahead of change.

Ladies and gentlemen, the U.S. economy is undergoing a dramatic metamorphosis. Unfortunately, to date our approach to a national energy strategy has lagged behind. It is time for a fundamental rethink, unencumbered by outmoded policies and philosophies and views of the world - legacies of the past.

The world has changed. To sustain America's unprecedented prosperity, our energy paradigm must likewise shift.

I am supremely confident that we can devise and adopt such a national energy strategy. The basis for my confidence is that today, as much as at any time in the past, government, industry, consumers and the research community share a common vision for our future, and because the answers are right before us.

I know James Spigarelli and his people will lead MRI's effort. And, who better to search for renewable energy than Admiral Truly, a hero of our space program before joining in the exploration for new energy at NREL (National Renewable Energy Laboratory).

I read an interview with Admiral Truly in which he spoke of floating over the Sahara in the shuttle during the daylight, and saw no signs of human habitation. Then, he would pass over the same land at night, and against immense blackness of the desert below, he would see the unmistakable sparkles of Bedouin campfires.

Admiral Truly's experience is a metaphor for the challenge before us today. Yes - we do need a national energy strategy. And, yes - we will devise workable strategies to secure America's energy needs. We need only understand that often, like those campfires, the best answers are camouflaged as part of our landscape - something hidden in "plain sight."